Australia: Retrenchment due to ordinary and customary turnover of labour disentitles employee to redundancy pay

For many decades Australian industrial law has generally
recognised the concept that where particular employment is based on
the employer retaining a particular contract, the loss of that
contract leading to the dismissal of employees performing the work
of that contract does not attract redundancy pay obligations.

This concept is enshrined in the 'ordinary and customary
turnover of labour' exception that appears in the National
Employment Standard (NES) redundancy pay provision in s 119(1) of
the Fair Work Act 2009 (Cth) (the Act).
Section 119(1) of the Act provides that an employee is entitled to
be paid redundancy pay by the employer if the employee's
employment is terminated at the employer's initiative because
the employer no longer requires the job done by the employee to be
done by anyone, except where this is due to the ordinary and
customary turnover of labour. In other words, even though an
employer is dismissing an employee because it no longer requires
the employee's job to be performed by anyone – being the
recognised test for redundancy – the fact the dismissal has
the character of ordinary and customary turnover of labour means
the NES redundancy pay entitlement does not arise.

In Spotless Group v Dennis Buckle [2017] WAIRC 323, an
employer successfully established that this exception applied in
the following circumstances:

The employer operated a contracting business providing a range
of services to clients including catering and hospitality,
security, maintenance and cleaning.

The employer recruited the majority of its employees to work on
and be 'tied to' specific client contracts.

An employee worked under a contract between the employer and a
client for the provision of facility maintenance services.

Following the loss of that contract to another contractor, the
employer informed the employee that upon termination of the
contract, if no acceptable alternative employment options could be
identified with either the employer or the incoming contractor his
employment would be terminated as a consequence of ordinary and
customary turnover of labour.

The employee was not offered a position within the employer,
nor with the incoming contractor and was not paid a redundancy
payment, despite almost 7 years of service.

The employee's employment contract provided that upon
termination of employment on grounds of redundancy, the
retrenchment benefits payable to the employee will accord with the
terms of the employer's applicable retrenchment policy. As it
was, the employer did not have a written retrenchment policy, but
adopted the practice of generally following the NES or applicable
award or enterprise agreement.

The Western Australian Industrial Relations Commission referred
to the contractual provision for redundancy and observed that in
the absence of a retrenchment policy, the clause was uncertain and
of no effect. However the Commission ruled that the policy was to
apply the NES. Therefore, the employee's entitlement to
retrenchment benefits under the redundancy clause in the employment
contract accorded with the NES for redundancy pay. The NES
disentitled the employee to a redundancy payment where employment
is terminated due to the ordinary and customary turnover of labour.
Given that was the case here, the employee was not entitled to
redundancy pay.

Lessons for employers

There was no dispute in this case that the employment was
terminated due to ordinary and customary turnover of labour.
However care must be taken when treating redundancy situations
arising from a down turn in trade or loss of custom as ordinary and
customary turnover of labour. The exception only applies where
there is a close association with the particular employment and a
contract between the employer and the client.

In this case, the employer's redundancy provision did not
include an express exception for the ordinary and customary
turnover of labour. While the employer was fortunate that the
Commission was willing to construe the provision as incorporating
the NES, it would be prudent for employers wishing to enforce such
a clause to include appropriate wording in their agreements.

This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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Valenzuela decision highlights that employers must seriously consider any potential dismissal based on serious misconduct.

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